WASHINGTON -- After two decades of industry lobbying, White House and congressional negotiators agreed yesterday to tear down Depression-era financial walls in favor of a free-wheeling market for bank deposits, insurance, stocks and bonds.
The historic agreement marks an era of deregulation and free market triumph, when the despair and financial panic that confronted President Franklin D. Roosevelt in the 1930s long since has been replaced by the confident prosperity of President Clinton's 1990s.
The accord by elected leaders to repeal the landmark Glass-Steagall Act of 1933 comes after more than a decade of steady chipping at the legal barriers by financial regulators and the courts.
It also comes amid the political ascendancy of the baby boom generation, which has largely shifted its financial future away from the safety and uninspiring returns of bank deposits and embraced the riskier but more promising world of the soaring stock market. The whole issue has elicited little more than a shrug from voters, comfortable with planning for their retirement through 401(k) accounts and investing through online brokerages.
The agreement, reached just before 3 a.m. in a small conference room at a Capitol office building, paves the way for an acceleration of the continuing transformation of banks, stock brokerages and insurance companies into Wal-Mart-like, one-stop financial superstores.
The final compromise must pass the House and Senate and be signed into law by the president. But both houses of Congress demonstrated strong support for the regulatory overhaul when they passed earlier competing versions.
The legislation would make it easier for banks, stock brokerages and insurance companies to combine and sell each other's products. A key provision is that it would enable banks to underwrite insurance, an activity from which they are banned.
Advocates of the measure say that all-purpose financial institutions will be able to squeeze out substantial savings and pass them on to customers through lower fees, particularly for those with the money and inclination to take advantage of bulk discounts for buying multiple services such as bank accounts, stock-trading and insurance coverage from a single institution.
The freer regulatory environment also might allow financial institutions more leeway to develop innovative services and improve the ability of U.S. institutions to compete in the global financial economy, proponents say.
The legislation "will bring lower costs, more choices and better protections for consumers," Clinton said.
Critics contend that the shift will lead to a further concentration of financial power in big institutions, erode consumer privacy and place federally insured bank deposits at risk when other financial ventures collapse.
In the end, there were few differences among negotiators over those far-reaching economic ramifications, although some Democrats and the White House expressed concern that consumer privacy protections were too weak.
The main sticking point was a clash between the conservative Senate Banking Committee chairman, Sen. Phil Gramm, a Texas Republican, and Democrats in Congress and the White House over a law to ensure that banks serve minority and low-income communities.
The provision, the 1977 Community Reinvestment Act, is almost sacred to inner-city activists, who are a crucial part of the Democratic Party's core. Gramm and some other conservatives view it as a burdensome intrusion into the business of banking, although industry representatives view it as paling in significance beside the larger legislative package.
Ultimately, the negotiators agreed to retain legal requirements that banks show satisfactory performance on their reinvestment responsibilities before they can expand into businesses or merge with other institutions. But agreements they reach with community groups as part of their compliance would have to be publicly disclosed, and small banks would be checked less frequently if they had demonstrated satisfactory performance on the obligations.
The agreement won plaudits from as fervent a liberal as the Rev. Jesse Jackson, president of the Rainbow/PUSH Coalition in Chicago.
"The financial modernization bill, fully implemented and enforced, can heal the breach between the surplus and the deficit cultures and begin to 'green line' red-lined America," Jackson said in a statement.
Gramm said that the legislation "grants major regulatory relief to every small bank in America."
Although Congress repeatedly has considered legislation to repeal the Depression-era banking laws since 1979, this was the first year a deregulatory measure passed the House and Senate.